Rentokil Initial 1927 plc v Goodman Derrick LLP [2014] EWHC 2994 (Ch); [2014] PLSCS 254 concerned a contract for the sale of land for residential development. The agreement was conditional on the grant of planning permission and the buyer took a tough stance while negotiating the list of “unacceptable planning conditions”. However, as a result of the seller’s solicitors’ efforts, the test of whether a planning condition was acceptable became substantially objective, instead of wholly subjective.
When the property market crashed, the buyer claimed that the planning permission was unacceptable – and seized on a formatting error, which had crept into the contract during the negotiations, which appeared to restrict the objective test to one – as opposed to both – limbs of one clause. The parties began arbitration proceedings to resolve the dispute, as was required by their agreement. However, the case settled, at the seller’s instigation, shortly before it was heard.
The seller subsequently issued negligence proceedings against its solicitors, claiming the difference in value between the original contract price and the price eventually paid by the buyer. It estimated its loss at approximately £1.88m and claimed a further £600,000 for the wasted costs of the arbitration.
The judge reminded the seller that the construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean – and the fact that one of them chooses to advance an incorrect and implausible construction of a contract is neither good evidence nor a good reason for concluding that the drafting was defective.
The judge construed the agreement to mean what it would have meant, absent the formatting error, and thought that the buyer would have asserted that the planning conditions were “unacceptable” whatever the contract said. The wording was not at fault and the seller had chosen to settle the litigation without regard to the merits of the case because it wanted to divest itself of the property and was concerned about the seller’s buyer’s financial position.
The decision reminds us that the precise scope of a professional’s duty to advise depends, among other things, on the extent to which a client appears to need advice. An inexperienced client will need and will be entitled to expect his solicitor to take a much broader view of the scope of his retainer and duties than an experienced client.
The seller’s external solicitors had reported to their client in a letter, which they described as a “very brief summary of only the key provisions of what is an extremely complicated sale contract”. They explained that the summary was “no substitute for perusal of the form of contract” and clearly expected the recipient of their letter – an experienced in-house solicitor who had been closely involved with the negotiations and had instructed them throughout – to read it through. The judge ruled that this was entirely defensible.
The seller was a highly sophisticated commercial client, acting through an in-house solicitor with considerable commercial experience, who had understood the risks of entering into a conditional contract. There must be a sensible limit on a solicitor’s duty to explain legal documents and it had not been necessary for the seller’s external legal advisers to undertake a line-by-line analysis of the contract for the seller’s benefit.
Allyson Colby is a property law consultant
